Russia considers loan to Ukraine to help pay for gas

Gazprom decided not to prolong a natural gas discount to Ukraine beyond 1Q14, the company’s CEO Alexey Miller reported to Russian PM Dmitry Medvedev at their open meeting on March 4. Ukrainian monopoly gas importer Naftogaz (NAFTO) repaid USD 1.3 bln of its past debt for gas, but still owes USD 1.53 bln for gas supplies in 2013 and January 2014, Miller reported. He also proposed that the Russian government consider providing a USD 2-3 bln loan to Ukraine to enable Naftogaz to settle the accumulated gas debt. In response, Medvedev said he will order the Finance Ministry to consider such an option.

As another possible option for the Ukrainian government, EU Energy Commissioner for Energy Günther Oettinger stated on March 4 that its financial aid package will take into account Ukraine’s “colossal debt” for Russian gas.

Alexander Paraschiy: The willingness of the Russians to provide a loan to the new Ukrainian government – which it reviles – looks strange only at first glance. To us, it reflects the same intention they had when signing the Dec. 17 deal, offering up to USD 15 bln in loans to Ukraine. Now it’s clear that the loan was intended to secure smooth payment by Naftogaz to Gazprom for the gas that Ukraine was expected to import in 2014 (USD 11-12 bln), as well as repayment of Ukraine’s accumulated debt (USD 2.7 bln) for the gas it imported in 2013. In other words, this wasn’t financial aid extended to a “brotherly nation,” as the Ukrainian and Russian presidents were trying to present the deal back in December 2013. We can only imagine how much it annoyed Putin to learn that former Ukrainian President Viktor Yanukovych didn’t spend the USD 3 bln loan provided in December to settle the gas debt.

It was broadly expected that the Russian side would not prolong its gas discount (which, as agreed, will cost Ukrainian consumers USD 268.5/tcm in 1Q14), simply for political reasons. At the same time, a new Russian loan looks encouraging for Ukraine: sooner or later, Naftogaz will have to find resources to settle the outstanding debt to Gazprom, and the Russian initiative would be very helpful in solving this issue.